During a recent interview, First Majestic Silver CEO Keith Neumeyer shared some interesting comments about the silver market. In particular he spoke about a development that could lead to the end of the ongoing manipulation.
For those not familiar, Neumeyer is one of, if not the only mining CEO to speak publicly about the manipulation that has left silver prices suppressed. His interviews always offer insightful commentary, and this latest one covered what could be a game changing event for the price of silver.
For those who have read about or studied the manipulation, you’ve likely heard about how there’s a large disconnect between the physical and paper silver markets. Of course the natural question on the mind of many investors, is when will it end.
In his interview Neumeyer mentioned that “there’s work going on right now to create a system using blockchain to price metals.” When asked directly how he thought the implementation of such an idea could impact the situation in the silver market, here’s how he responded.
“It’s going to remove the whole system of marginal banking where today we have over 300 times margin on silver. Silver trades on a global scale about a billion ounces a day and virtually all of that is paper, or 90% plus is paper.
The miners produce 800 million ounces a year, so we’re trading, just using simple math, 365 billion ounces a year on the exchanges worldwide, and we’re only producing 800 million ounces per year.
That’s a quite lot of leverage in my view. So if you get a way from the exchanges, that leverage disappears, and you have a much more fair pricing mechanism.”
That whole system that’s currently pricing our metals is going to end”
Keep in mind that Neumeyer is not the only figure in the market to suggest such a possibility. There was a lot of attention in mid 2017 when well-known analyst Andrew Maguire predicted a gold and silver price reset, based on his involvement with a similar project at the time.
Obviously that didn’t occur on the schedule Maguire predicted. However his forecast was based on the introduction of a blockchain product backed by gold and silver, which was delayed, but is what Neumeyer is talking about now.
Neumeyer also commented on some of the supply and demand fundamentals in the market that have led to the potential development of such a product.
“If you go back to 2015, the mining industry as a whole worldwide produced 850 million ounces of silver. In 2016 that number was 800 million ounces. A reduction of 50 million ounces. We know in 2017 that Chile is down 10%, and Canada and Mexico are also down.
If we add it all up the speculation is that the mining industry as a whole is something in the order of 750 million ounces in 2017. So we’re seeing declining world production of silver and increasing demand for the metal. This is a perfect storm.
The market hasn’t picked up on this yet, but this is a serious issue.
In terms of how that will impact the market, Neumeyer shared the following:
There will be a day, and in my view it’s going to be in the short term, not in the long term, whereby you have a Tesla, an Apple, or a Toyota that just simply can’t produce their products anymore because they have a lack of silver.
That’s what going to change the industry, and that’s going to start showing up in the headlines. Naturally we’re going to start see a big change in the current ratio to numbers that are closer to the production ratio of 9:1 (gold to silver) which will put silver at triple digits.
I’m actually quite positive about blockchain technology because blockchain is going to be a way for mining companies to price their metals on a direct basis so we could sell direct to consumers, bypassing all of the current exchanges.
I believe that the current system with the LBMA and CME/COMEX type system is at the end of its ropes.”
Certainly it’s reasonable for silver investors to be frustrated by the pricing action of past years. I can understand being tired of hearing the reasons why the price should rise, only to see it stay the same or drop lower.
But while the wait has been longer than many might have imagined possible, there are reasons to believe we could be nearing the break point. And perhaps the marriage of precious metals and blockchain technology will be what finally brings free-market pricing back to precious metals.
